What Makes E-commerce Work in Indonesia?

E-commerce companies in Indonesia have found a recipe for success by going after a growing pool of consumers with access to the Internet but not the brick and mortar shops selling what they want.

“E-commerce is growing because Indonesians are finding it increasingly easy to get online, and the offline stores have not been able to keep up with their demand,” said Susie Sugden, a co-founder of Vela Asia, a premium fashion e-commerce retailer that offers hard-to-find local and international brands, such as Lee Cooper and Jack Nicklaus.

The company recently received $1.5 million in investment funding from Singapore-based venture capital firm Majuven. The investment was one of dozens that have occurred in the Indonesian e-commerce sector over the past year, including the biggest so far in Indonesian ecommerce, a $100 million investment in Tokopedia by Japan’s Softbank and U.S.-based Sequoia Capital.

“E-commerce also offers more convenience,” said Kusumo Martanto, CEO of Blibli.com, a popular online business-to-consumer marketplace that plays on the Indonesian word for buy. Aside from the ability to shop from the comfort of home, most e-stores also offer round-the-clock customer care and various payment methods. Mr. Martanto says Blibli has partnered with 11 banks to offer more payment options for customers without credit cards. “And customers can exchange, refund, or return the purchase,” he said. Some physical stores won’t accept such transactions.

There are also plenty of opportunities for growth in Indonesia’s second- and third-tier cities, which still have few shopping malls – and thus, few brand options – when compared to the capital Jakarta, with more than 170 malls.

Founded in 2011, BliBli.com recorded 400% growth in revenues and a 400% leap in the number of customers between 2013 and 2014. Mr. Martanto wouldn’t disclose total revenue growth for 2014, but he said his company served 2.5 million people across Indonesia that year.

Rising incomes and growing access to technology, including the increasing availability of smartphones, has given a boost to the e-commerce industry here. Of the roughly 75 million Internet users in Indonesia last year, around 5.9 million had shopped online, according to latest e-commerce report from Singapore-based global logistics firm SingPost. It estimated that online sales in Indonesia will reach $3.56 billion this year, up from $2.6 billion in 2014.

To expand their reach, many e-commerce firms have launched smartphone applications and designed mobile friendly Websites to fit to a market where many people still access the Internet through feature phones.

“We use responsive design, which makes sure that customers can browse easily on laptops, mobile phones, or tablets,” said Vela Asia’s Ms. Sugden. “Currently over 60% of our sales comes from [PC] browsers and 40% from mobile [devices].”

But Indonesia’s ecommerce startups still have to overcome obstacles facing other industries, including a lack of infrastructure and poor logistics that can hamper product delivery across thousands of far-flung islands.

To tackle this, BliBli has partnered with logistic companies that handle warehousing, last-mile delivery and cross-border management. It has also started its own delivery service. “We want to use our supply strength as one of our competitive powers,” said Mr. Martanto.

Another challenge is that the vast majority of Indonesians don’t own credit cards, making it harder for them to purchase items that require electronic transactions. To get around this, many local e-commerce firms provide a cash-on-delivery service that allows customers to pay couriers directly for their orders upon delivery. Most sites also offer cash transfers.

“Only about 10% of our purchases are [paid] through credit cards, the rest are through bank transfer,” said Ms. Sugden whose company rolled out a cash on delivery across Jakarta at the end of last month.